What Is Open Interest?

Open interest is the total number of outstanding derivative contracts for an asset—such as options or futures—that have not been settled. Knowing the number of 澳洲幸运5官方开奖结果体彩网:open positions in a particular contract tells traders whether the amount of money flowing into the ꦡcontract is increasing or decreasing.

Thus, open interest, rather than the total number of trades, provides a more accurate picture of a contract's liquidity and the current level of interest in it.

Understanding Open Interest

Open interest is most often associated with the futures and options markets, where the number of open contracts changes daily. Open interest is the number of options or futures contracts held by traders in active positions. These positions have been opened, but have not been closed out, expired, or 澳洲幸运5官方开奖结果体彩网:exercised.

Open interest decreases when buyers (or holders) and sellers (or writers) of contracts close out more positions than were opened that day. To close out a position, a trader must take an 澳洲幸运5官方开奖结果体彩网:offsetting position or exercise their option.

Open interest increases once again when investors and traders open more new long positions or sellers take on new short positions in an amount greater than the number of contr▨acts that were closed that day.

Here's a simple scenario—assume that the open interest of the ABC call option is 0. The next day a trader buys 10 ABC options contracts as a new position. Open interest for this particular call option is now 10. The day after, five ABC contracts were closed, and 10 were opened. This means that open interest increased by five to 15.

Open Interest vs. Trading Volume

Open interest is sometimes confused with trading volume, but the two terms refer to 澳洲幸运5官方开奖结果体彩网:different measures. For example, imagine one trader holds 10 opti♏on contracts and sells them to a new trader entering the market. The transfer of these contracts does not create any change in the open interest because positions were transferred, not closed or opened.

Tꦯrading volume, on the other hand, increased by 10 because of the transferral.

The Importance of Open Interest

Open interest is a measure of market activity. Little or no open interest means there are no opening positions, or that nearly all the positions have been closed. High open interest🐷 means there are many contracts still open, which means market participants will be watching that market closely.

Open interest measures money flow into or out of a futures or options market. Increasing open interest represents new or additional money coming into the market, whi♒le decreasing open interest indicates money flowing out of the market.

Open interest is significant to 澳洲幸运5官方开奖结果体彩网:options traders as it provides key information regarding the 澳洲幸运5官方开奖结果体彩网:liquidity of an option.

Real-World Example of Open Interest

Below is a table of trading activity i🐲n the options market for traders A, B, C, D, and E. Open interest is calculated following the trading activity for each day. The key to understanding how this works is whether the trader bought or sold to open or close positions.ܫ

• Jan. 1: Trader A buys one option to open a position from Trader B, increasing open interest by one.
• Jan. 2: Trader C buys five options to open a position from D, which increases open interest to six.
• Jan. 3: Trader A sells one option to D to close a position, decreasing open interest by one.
• Jan. 4: Trader E bought five options from C to open positions, who sold the five purchased from D to close positions.

The Bottom Line

Open interest is the total number of open derivative contracts that haven't been settled. They haven't been exercised, closed out, or expired. This measurement is associated with the options and futures market rather than the stock market. Open interest is equal to the total number of open contracts, not the sum of all transactions between buyers and sellers.

When open interest🃏 goes up, it represents new money coming into the market. When open interest decreases, it means money is flowing out of the market. Open interest is not generally viewed as an indicator of trends or price action.